Performance and valuation:
In respect of its valuation but also in terms of its growth potential the NTX is still sitting pretty. The Co-Head of CEE Equity Research Henning Esskuchen commented on the current state of affairs: „Though, the index is still trading at some premium versus the EuroStoxx 50 as well as the global emerging markets. However, the premiums remain justified not only by a still superior growth outlook (main argument against the EuroStoxx), but also because we are still convinced that CEE represents a different asset class than the emerging markets. We remain upbeat on the unique scenario, in which converging CEE markets offer pretty much the same growth we find in emerging markets, but do not carry the same risks. Having joined the EU or being just about to do so should reduce the overall risk framework significantly.”
Changes in index structure:
As one of the main advantages of an index over a simple basket of stocks representing a region, the NTX has undergone quite a number of changes during its first year of existence. The permanent adjustments to the index ensured that the NTX always represented a very recent picture of CEE market reality. Austria did lose some importance within the index, while Romania was a strong gainer, underlining the importance of the sound potential of this market. Following the index rules – to include the top 30 companies by free float – has bitten into the proportion of Austrian stocks. Of the original 13 Austrian stocks, only 10 remain. EVN, Andritz and BA-CA left the index, while strong regional player Wiener Städtische was added and Andritz managed to enter the index again. Vienna International Airport was kicked out in the last index review. But overall, Austria has confirmed its place within the CEE markets since its development is more closely entwined with the markets of Central and Eastern Europe than its counterparts in the EU-15 or G7. An analysis of the volume of Austria’s direct investment in neighbouring states also places it firmly among the ranks of the CEE markets.
However, the Czech Republic was the strongest gainer in fact. Two Czech stocks (CME and Zentiva), as well as Poland’s PGNiG, were welcomed to the NTX. PGNiG, however, did not last for long and left the NTX again. Romania in turn managed to increase its weight, with BRD – Group SG, Petrom and Banca Transilvania being included. The only country to lose weight apart from Austria was Hungary, reflecting its recent turmoil. Among the sectors, the generally weaker outlook on oil stocks found its reflection in the sector’s lower weighting, while pharmaceuticals showed the strongest gain in weighting, driven mainly by Pliva’s takeover story.
Outlook:
Even though we certainly expected a healthy correction for the CEE markets at the beginning of the year, the actual correction proved to be somewhat greater than we anticipated. Nevertheless, we see no fundamental reason to be particularly worried. The NTX was affected by the rising risk aversion around the world as well; fundamentally the markets are healthy and accordingly the valuations are very good by historical comparison. Only Hungary has some ground to make up from an economic perspective. The problems experienced by this country have certainly been known for some time now and the fact that measures are finally being taken should definitely be construed as a step in the right direction, even if they do focus primarily on income. However, realistically we do not expect any miracle performance this year. It is more likely that the markets will stabilise at this level and drift sideways.
Investment products based on NTX:
A range of diverse products are offered by Erste Bank on the New Europe Blue Chip Index. Four selected investment products offer outstanding earnings potential in bullish and stagnating markets but also in periods of modest decline:
For bullish markets:
• ESPA STOCK NEW EUROPE ACTIVE (ISIN AT0000A009G0 T)
The ESPA STOCK NEW-EUROPE ACTIVE from Erste – Sparinvest is a fund that focuses on long-term intrinsic value and therefore concentrates on the NTX. It invests in Austria, the new EU Member States and the Union’s candidate countries. When choosing the stocks the fund managers adopt an active investment
approach based on fundamental valuation methods and technical selection criteria. Foreign currency risks are not hedged.
• ESPA STOCK NTX (ETF) (ISIN AT0000A00EH2)
The ESPA STOCK NTX ETF is the first exchange-traded fund on an Eastern European benchmark. This fund tracks the NTX (New Europe Blue Chip Index) fully and on an 1:1 basis. As an ETF (Exchange-Traded Fund) this fund can be traded at current prices every day on the Vienna stock exchange.
For markets stagnating and modestly declining:
• NTX Bonus Certificate (ISIN AT0000A00GN5) – Bonus level: 1800 points, barrier 1150 points
With the NTX Bonus Certificate of Erste Bank, investors benefit fully from the development of the NTX: What is more, the bonus certificate also provides a high bonus yield of almost 20% at the end of the term (19.9.2008). This is because the bonus level of 1800 points will definitely be paid out at the end of the term. In the event the index is listed at above the bonus level, the higher value will be paid, i.e.: investors benefit fully from rising prices! Only if the price reaches or falls below the barrier of 1150 points during the term is the prospect of a bonus payment lost. In such a case the actual index value is paid out at the end of the term.
• NTX Discount Certificate (ISIN AT0000301338) – Cap 1600 points
With Erste Bank’s NTX Discount Certificate investors receive a payment of up to the cap, which totals 1600 points. By relinquishing the right to the maximum price gains, those investing in a Discount Certificate receive a discount on the current index prices. Even if the NTX price remains unchanged, investors still stand to profit nicely, whilst there is also some security in the case of falling prices. The current discount is 11.26%, while the maximum profit is 16.16% p.a.
